Gavan Nolan of Markit wrote this CDS report
European credit indices recovered late in the session as central bank actions and strong US economic figures reassured investors. The Markit iTraxx Europe finished around 87bp, flat on the previous close but significantly tighter than levels seen this morning. It was a similar story with the Markit iTraxx HiVol index (143bp), while the Markit iTraxx Crossover underperformed slightly compared to the investment grade indices and rallying stock markets. The index closed at 530bp, 5bp wider on the day.
It came as no great surprise that the Bank of England announced an extension to its quantitative easing programme. But there was debate about the amount, with the consensus split between £25 billion and £50 billion. In the event the Bank plumped for the former, bringing the total amount in the programme to £200 billion. The decision was well-received by the markets,sending out a signal that it was prepared to support the economy but not indefinitely. Strong Markit PMI data earlier this week might have influenced the decision, as well as a preview of the quarterly inflation report due later this month.
Stronger than expected US productivity figures provided additional momentum this afternoon. Non-farm productivity increased to an annual rate of 9.5% in the third-quarter, its fastest growth for six years. Unit labour costs continued to shrink and, along with a fall in weekly jobless claims today, suggest that the pace of hiring could pick up in the coming months.
The picture was mixed in the single-name market, though there was a small tightening bias. Telecoms and supermarkets were among the best performers, the latter sector helped by relatively strong results from Belgian group Delhaize. Banks were moderately wider after Commerzbank announced that it would increase provisions for non-performing loans.
The pattern was much the same in North America. The Markit CDX IG index tracked equities, tightening by 1.5bp to trade around 104bp. Aside from the productivity and unemployment data investors were focused on retail same-store sales figures. Sales for October were broadly in line with expectations, increasing by 2.1% year-on-year according to the International Council of Shopping Centers. Luxury goods chain Nordstrom was one of the best performers, posting a 6.5% increase compared to the 3% consensus estimate. Kohl’s sales came in below expectations but investors took encouragement from the company raising its third-quarter earnings guidance
Pharmacy chain CVS Caremark‘s third-quarter earnings also beat expectations. But its spreads widened and its stock price slumped 20% after it warned that profits at its Caremark division would be down 10% to 12% next year. It also announced that Caremark’s CEO is stepping down. CVS acquired Caremark close to the top of the market in March 2007.